Home > Uncategorized > It’s In The Clouds, Stupid!

It’s In The Clouds, Stupid!

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The New York Times

Friday, April 29, 2016

Daily Report
Ten years ago last March, Amazon started the era of renting data storage and computing over the Internet, what is now known as cloud computing. On Thursday, Amazon showed how critical it is to the retailer’s future.
As Nick Wingfield writes, the Seattle-based Internet retailer reported net income of $513 million, a great showing for a company with thin profit margins that often reports losses.
The star of the show was Amazon Web Services, or AWS, that cloud business. Amazon breaks out that sector from the rest of its business, and it makes for impressive reading: Operating income as a percentage of sales for Amazon’s retail business was 3 percent; for AWS it was 24 percent.
AWS is still a relatively small part of the company’s total business, but that outsize profitability is reshaping Amazon. Over all, the company’s operating income is 3.6 percent of revenue, but that is up from 1.1 percent a year ago. A big reason is that AWS has doubled its profitability.
The effect of new, cloud-based businesses is everywhere in tech this earnings season, from Intel cutting 12,000 jobs as it reorients itself from personal computers to the cloud, to Microsoft reporting lower profits, but investors buying the stock on word of growth in its cloud business, which is similar to AWS.
Cloud computing makes a lot of money in part by automating things: A large data center, supplying potentially thousands of customers, may be run by just a half-dozen people. The people engineering these systems have become very clever about running them efficiently too, devising special semiconductors and software.
Google and Facebook are also cloud-based companies, though for now they get most of their money from advertising.
As we near the end of the tech earnings season, it is useful to look at net income earned per employee at the company. Microsoft had profits of about $32,200 per person in the quarter, a healthy performance considering how many employees it still has in older businesses. It came in just ahead of Goldman Sachs, on a profit per employee basis.
Google was twice that, however, at $65,600 per employee. Facebook, which had a great quarter came in tops, at $115,000.
There are two more, both largely sellers of retail products to consumers. Apple, which had its first quarter with lower earnings in 13 years, still managed to make $105,000 per person. At the other end of the spectrum was Amazon, earning just $2,092.
There are two lessons from that: If you do sell retail products, it helps to sell highly profitable fetish objects, like iPhones — which, not incidentally, have a lot of value because of the cloud-based apps running on them.
And if you are selling bargain retail, it’s a very good idea to be in the cloud computing business, too. — Quentin Hardy
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